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Is cash for clunkers good policy?

After a bout with the stomach flu, I’m actually feeling kind of human this morning, so I thought I might chat a little about cash for clunkers.

Matt Kahn writes about the program here and here. Slate does a simple calculation here. Matt concludes that the cash for clunkers hurts low-income car buyers in both countries, by effectively setting a price floor for used vehicles, and in the second group of calculations, he works through the carbon return from the program.

I don’t know who designed the program as it was implemented. I was an advocate for a much more limited, spatially targeted version of cash for clunkers prior to this, as it would be very nice to get beaters off the road for local air quality benefits. I also supported a much lower buy-out level, with the supposition being that you’d switch to transit rather than simply exchanging one car for another. Instead, the existing program is targeted towards people who purchased SUVs, woke up when gas prices spiked, and are now looking to offload their bigger cars. And this program does nothing to target gross polluters. Improving mpg does address both local and global emissions, but not as much as explicitly targeting gross polluters would. When I advocated for fleet replacement policies years ago, I was told we couldn’t “do this because it would hurt the poor.” It’s kind of interesting that this existing program, which creates a much higher price floor, has been almost entirely uncontested based on equity grounds.

There has always been some concern about what would happen for low-income motorists when the SUVs began to dominate the secondary market for automobiles. The expectation was that gas guzzlers would so increase the operating costs of motoring that low-income motorists would have to scale back usage. We may be changing that calculus with this program somewhat.